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Does Competition Between Experts Improve Information Quality: Evidence from the Security Analyst Market

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  • Jin, Chuqing

Abstract

This paper studies how competition affects the quality of information provided by security analysts. Security analysts compete to make earnings forecasts and are rewarded for being more accurate than their peers. This leads them to distort their forecasts to differentiate but also disciplines them against reporting over-optimistic forecasts. I structurally estimate a contest model capturing both effects and simulate counterfactual policies changing analysts’ incentives. I find the disciplinary effect dominates: rewarding relative accuracy reduces analysts’ forecast errors, but at the cost of increasing forecast noise. It is optimal to have moderate analyst competition, balancing more aggregate information against intensified distortions.

Suggested Citation

  • Jin, Chuqing, 2024. "Does Competition Between Experts Improve Information Quality: Evidence from the Security Analyst Market," TSE Working Papers 24-1553, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:129580
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    References listed on IDEAS

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    3. Ali Hortaçsu & Jakub Kastl, 2012. "Valuing Dealers' Informational Advantage: A Study of Canadian Treasury Auctions," Econometrica, Econometric Society, vol. 80(6), pages 2511-2542, November.
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    6. Alexander Ljungqvist & Felicia Marston & William J. Wilhelm, 2006. "Competing for Securities Underwriting Mandates: Banking Relationships and Analyst Recommendations," Journal of Finance, American Finance Association, vol. 61(1), pages 301-340, February.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    forecasting contest; security analyst; competition;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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